Pakistan is underprepared to meet the European Union’s stringent Carbon Border Adjustment Mechanism (CBAM) standards, raising alarms over the potential impact on the country’s exports and industries. The CBAM, set to fully integrate with the EU’s Emissions Trading System (ETS) by 2026, aims to prevent “carbon leakage” by ensuring foreign and EU producers face equivalent carbon costs.
Ibrahim Shamsi, Director of Zona Pakistan Private Limited and a Karachi Chamber of Commerce and Industry (KCCI) representative, stressed the urgency of the situation. “Pakistan is ill-prepared for the upcoming CBAM,” he said, highlighting the risks to key exports.
Immediate and Long-Term Risks
The CBAM currently targets exports of iron, steel, aluminum, cement, fertilizers, electricity, and hydrogen. From October 17, 2023, exporters to the EU must report carbon emissions across their supply chains. According to Dr. Abid Qaiyum Suleri, Executive Director of the Sustainable Development Policy Institute (SDPI), only 1.23% of Pakistan’s current exports are affected, but the inclusion of textiles—a cornerstone of Pakistan’s export economy—poses a significant future risk.
“Reducing emissions or paying offset costs is no longer optional,” Dr. Suleri explained. The mechanism has inspired global momentum for carbon pricing, with countries like Indonesia, Japan, and Vietnam implementing similar measures.
Compliance Challenges and Opportunities
Dr. Suleri pointed out that compliance will demand robust Monitoring, Reporting, and Verification (MRV) systems, aligning with international standards like ISO 14065:2020. However, Pakistan lacks ISO-certified verification bodies, potentially inflating compliance costs and timelines.
Despite these challenges, Shamsi sees CBAM as an opportunity. “It’s a chance to rethink business practices, adopt greener technologies, and address longstanding inefficiencies,” he said. Referring to the CBAM as a “reset button,” he emphasized that industries must adopt a proactive approach.
Government Action Needed
Experts stress the importance of a National Carbon Pricing Policy and a carbon tax aligned with EU emission fees. Additionally, energy reforms, such as transitioning to cleaner electricity and promoting sustainable agriculture, could mitigate emissions.
Shamsi also highlighted the need for immediate government support, including zero-interest loans for green machinery and reduced customs duties. “These steps should have been implemented a decade ago,” he remarked.
Meanwhile, the Ministry of Climate Change (MoCC) and the Ministry of Commerce (MoC) are actively working on strategies to comply with CBAM. A Ministry of Commerce official, speaking anonymously, disclosed ongoing technical consultations and awareness sessions to prepare industries for the transition.
A Comprehensive Approach
A coordinated effort between federal and regional governments is crucial. Establishing local carbon markets could incentivize emission reductions and generate revenue through carbon credits. Public awareness campaigns and training programs are essential to equip businesses and citizens with the knowledge to adapt to low-carbon practices.
By embracing these reforms, Pakistan can align its industries with international environmental standards, ensuring competitiveness and sustainability in global markets. A proactive approach today could transform CBAM from a looming threat into an avenue for economic and environmental progress.
